Prepare Now for When Business Turns Around

Most of us in the kitchen and bath industry have been in survival mode for the better part of two years, watching new construction activity shrink to the lowest level seen in decades. Many of those involved with new construction have migrated to the remodeling business, adding to the competition in that segment and, as a result, driving margins down.

Under the circumstances, it’s hard to imagine making plans for an increase in business, but that is exactly what should be done before it actually comes about.

You need to keep in mind that it will not take a dramatic change in remodeling activity to make you feel like you have too much to do instead of not having enough. When that time comes, you will need a plan for dealing with staffing, materials and lead times.

Staffing

When there’s an increase in business, there are many issues that you will face, particularly if the change is a significant and dramatic upturn in the level of work that you are committing to. The first of these is the fact that your staff has likely consolidated its functions over the past few years, where one individual is performing the role previously carried out by two or more people.

Remember that these people have been stretched for a long period of time and they will react to this increase in business with mixed emotions. On the one hand, they will be thrilled with the prospect of improving cash flow and seeing greater stability for their jobs and the business. On the other hand, the addition of a larger work load associated with more business may push them past their breaking point.

The challenge will come in determining whether the uptick in business is just a temporary one or is more permanent. Just like the national economy, every business has “leading indicators” that will give an indication of what will be coming in the future. These are things like phone calls, Internet leads, floor traffic in your showroom, etc.

Assuming that your business takes retainers before doing design work, the level of retainers that your designers are working on will be the best indication of what the nearer term holds. You should regularly go over these indicators with your staff so that you can track these early warning signs of the future.

As always, it’s important to make sure that your staff knows what you are thinking and what plans you have to add help once there is confidence that the market has really turned around.

Materials, Suppliers & Subs

If you’ve visited your local lumber yard or plumbing distributor lately, you probably have noticed that they are operating with reduced staffing and have cut back the amount of inventory on hand as well. This situation will impact you when your business begins to improve and you take on more jobs, resulting in frequent back orders and shortages from these suppliers.

This same situation will extend back through the entire supply chain of the materials you use, since manufacturers in all of the construction-related industries have scaled back or even gone out of business altogether.

What all of this means is that, if you do experience an increase in business and this improvement is not limited to your business alone, you will be competing for a severely limited supply of the materials you will need to perform your work. You will need to make sure that materials and supplies needed to produce a project are ordered immediately after a project is signed in order to compensate for these supply chain dysfunctions.

You will most likely face a similar situation with your subcontractors. Many of the marginal trades subcontractors have gone out of business, often moving to a different area of the state or country in order to find work. One of the realities, though no one really talks about it, is that a significant number of the people working in the trades are here from foreign countries. As the construction industry has contracted, many of these workers have returned home and will not be readily available when business picks up.

You can expect that the best subs will be booked far in advance and will likely raise their rates with any sustained increase in business. You will have a leg up on your competition if you have been able to maintain your subcontractor relationships through the recession.

As with materials and supplies, getting subcontractors lined up as soon as a project is booked will be critical as demand for their services picks up. You can expect that the subs will not have the ability to handle an increased work load in the short run, limiting the amount of work they will be able to take on.

Lead Times

One way to balance the constraints that the above dislocations in your labor and supply chain create is to plan your lead times for starting jobs. Take into account what the expected lead times on materials are and what availability you have for your subcontractors when scheduling start dates for future projects.

You will have to closely monitor these lead times, as you may not sense a problem at first, since the minimal inventories on hand at your suppliers may get you through the first project or two, but then dry up as the distributors wait for resupply from the manufacturers. Keep in mind that the distributors will be reluctant to ramp up their inventories until they are sure that a recovery is really under way, so lead times for many of the things you will need to complete your projects may be hard to predict for some time.

As business increases, and after scraping by for over a year, it will be tempting to take on every job that comes along. While creating a substantial backlog of business is fine, be sure to give careful thought to the start dates you assign in order to keep from overloading your firm’s ability to keep up with the work.

So, while we all make the statement that we would rather have too much business than too little, when business does pick up we will find that the challenges do not go away, they simply change. Nonetheless, there is not one of us who would not trade these challenges for those of the past couple of years; we just need to be ready for them.

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